Nonfederal average manufacturer price to estimate savings generated by minimum discounts under the Inflation Reduction Act

DISCLOSURES: This work was funded by the West Health Policy Center. Dr Hernandez reports consulting fees from Pfizer and BMS, outside of the submitted work. Following the submission of the original manuscript, Dr Dickson became an employee of AHIP. AHIP has had no role in reviewing this letter. The statements, findings, conclusions, views, and opinions contained and expressed herein are not necessarily those of IQVIA Inc. or any of its affiliated or subsidiary entities.


To the Editor,
In a recent publication, we estimated savings associated with Medicare negotiation of drug prices for 10 Part D drugs in 2026. 1 To do so, we applied minimum statutory discounts to retail prices and found that 4 drugs would likely be subject to minimum statutory discounts in 2026, generating savings of $1.82bn.We used retail prices as a proxy for the statutory reference price, the nonfederal average manufacturer price (non-FAMP), which is a confidential, nonpublic price. 2 Non-FAMP is the weighted average price paid to manufacturers by wholesalers for drugs distributed to nonfederal purchasers.Non-FAMP is reported by manufacturers for pricing under the Federal Supply Schedule and will also be reported to the Centers for Medicare & Medicaid Services (CMS) as part of the negotiation process.The Congressional Budget Office (CBO) estimated a 13% difference between the average non-FAMP and the average retail price for 176 top-selling Part D drugs. 3 Although this estimate has been incorporated in previous estimates of savings 45 associated with negotiation, we believed this approach was not sufficiently precise to produce drug-specific calculations.In this letter, we estimate drug-specific non-FAMP as a sensitivity analysis to our use of retail prices.
We followed 2 methods to estimate non-FAMP: a direct estimate based on sales data and an indirect estimate based on publicly reported federal pricing data.First, we used IQVIA National Sales Perspective data, which report direct sales net of up-front discounts.We subtracted 340B sales from the direct sales estimate and amortized the remaining amount across the number of non-340B units sold in 2020. 7Second, we estimated non-FAMP using the 2020 Federal Ceiling Price (FCP), which cannot exceed 76% of non-FAMP.Because FCP is chained to inflation, it may grow more slowly than non-FAMP, causing an underestimate of non-FAMP.Therefore, we selected the higher of our sales-based estimate or the FCP-based estimate as non-FAMP.Only 1 drug (Imbruvica) had an FCP-based non-FAMP greater than the sales-based estimate.
We adjusted the 2020 non-FAMP estimate to 2022 USD using a 3% inflation rate and estimated the maximum negotiated price based on minimum statutory discounts.This ceiling was lower than the estimated 2022 net prices for 5 drugs, including the 4 drugs identified in our original publication and Januvia, where the estimated 2022 net price exceeded the non-FAMP-based ceiling by 1.6% (Table 1). 1 For these 5 drugs, minimum statutory discounts are estimated to generate incremental savings of $2.26bn, which is 24% higher than our original savings estimate ($1.82bn).Xtandi, the drug with the largest difference between non-FAMP and retail price (19.9%), was the main contributor to this difference in estimated savings.It should be noted that the $2.3bn estimate captures the savings generated by minimum statutory discounts lowering the negotiation ceiling price below 2022 net prices.Total savings will depend on the expected growth of net prices from 2022 to 2026, as capping negotiations at 2022 net prices is likely to independently generate savings by limiting net price growth.Consistent with our original findings, the price negotiation ceiling for many drugs will likely be set by existing net prices, not minimum statutory discounts, and CMS will Most notably, we were not able to subtract direct sales to federal purchases in the estimation of non-FAMP owing to unavailability of data on units sold to federal purchasers.Nevertheless, we believe our method yields more accurate estimations than the use of the average 13% difference between retail prices and non-FAMP estimated by the CBO report, which does not distinguish important variation across drugs, noted in Table 1.
We appreciate the insightful feedback by JMCP readership and the likely need to negotiate prices below the ceiling amounts to generate the savings estimated by CBO.
Our savings estimate is subject to the assumption that drug utilization and pharmacy benefit manager (PBM) rebates as a share of retail price remain constant in 2020-2026 and that retail prices and non-FAMP increased at an annual rate of 3% in 2020-2022.Our findings are subject to limitations associated with the use of indirect sources of data, as previously described, 1 to calculate PBM rebates and non-FAMP.

TABLE 1
Comparison of Maximum Negotiated Price Based on Statutory Discounts With Estimated Net Price for Drugs Expected to Face Price Negotiation in 2026 opportunity to revise our estimates and clarify their interpretation.DISCLOSURESThis work was funded by the West Health Policy Center.Dr Hernandez reports consulting fees from Pfizer and BMS, outside of the submitted work.Following the submission of the original manuscript, Dr Dickson became an employee of AHIP.AHIP has had no role in reviewing this letter.The statements, findings, conclusions, views, and opinions contained and expressed herein are not necessarily those of IQVIA Inc. or any of its affiliated or subsidiary entities.